After GST clarity, handset companies to put production back on track

Handset makers and contract manufacturers are set to bring their production schedules and capacities back to normal within a week to fortnight — after having cut them by up to 15% in mid-June — now that taxes and levies have been clarified by the government.

A 10% basic customs duty has been levied on imports of mobile phones to give protection to local production, thus giving additional fillip, even as they continue to help the trade channel get clarity on inventory and supply chain.

“Production had come down because of the uncertainty, but we’re scaling it back up from July-August because all the customers we’ve spoken to are looking to ramping up production instantly,” said Sunil Vachani, executive chairman of Dixon Technologies, which makes phones for Intex, Panasonic and Gionee.

“There is an incremental change of 25% in production in the coming quarter,” said Alok Shrivastava, director - business intelligence and planning, Gionee India, who added that the company was looking to launch a slew of models aimed at the youth, for which higher production is necessary.

Investments into local manufacturing are speeding up after the government levied an import duty on all foreign made phones being brought to India, bringing a differential of 10% for phones made in India.

“The government seems to be in a ‘walk the talk’ mode, they have been fostering a local manufacturing environment in the country and have been mindful of the early investments that have been made into manufacturing in India by many corporate houses already,” said Rajesh Agarwal, cofounder of Micromax.

Last month, handset makers had cut local production by 10-15% to avoid oversupply when the goods and services tax (GST) that began on July 1, as distributors refrained from stocking up for want of adequate clarity on the impact of the new tax regime.

While distributors are still holding back, many retailers are continuing to sell old stock at old prices.

The government, however, said on Tuesday that manufacturers and retailers can stamp new prices on their pre-GST stock of goods and sell them till end September, ending the confusion over the stock that was left unsold on July 1.

“Since we were not planning to increase prices, and we haven’t increased prices on existing models, it’s business as usual for us. We have, however, got back our production levels back to normal, and we will scale it up further,” said Pardeep Jain, MD of Jaina Group, which makes the Karbonn brand of mobile phones.

He added that since GST is a big change, in short term, it will bring some challenges but in the long term this will ensure ease of business for all in the supply chain, be it distributors or retailers.